TAKAFUL: Investment Income Drives Strong Earnings Beat, Analyst Maintains “Buy” Rating with Higher Target Price

Leading financial institution AmInvestment Bank has affirmed its “Buy” recommendation and raised its target price to RM3.90 (from RM3.80) for the company, following a robust nine-month performance for the fiscal year 2025 (9MFY25). The revised target price is based on a higher FY26F P/BV of 1.4x, up from 1.3x previously, reflecting an improved Return on Equity (ROE) forecast of 15.2%. The stock’s last traded price was RM3.12.

The company’s 9MFY25 earnings significantly surpassed expectations, accounting for 83.5% of AmInvestment’s forecast and 80.8% of consensus estimates. This strong performance was primarily driven by stronger-than-anticipated investment income. While net profit for 9MFY25 remained largely unchanged year-on-year at RM294 million (-0.7%), the third quarter of FY25 (3QFY25) saw a notable sequential increase, with net profit rising 37.6% to RM115 million, fueled by strong takaful service results and investment income.

Performance Review

The strong earnings were largely underpinned by a 9% year-on-year rise in net investment results to RM291 million, attributed to robust expected investment returns and higher realized gains on financial assets. Takaful service results also showed modest growth of 4% year-on-year, supported by a 17% increase in the Contractual Service Margin (CSM) release, which reached RM211 million. Additionally, the company benefited from reduced losses on onerous contracts and lower profit attributable to participants.

The company maintained its leadership in the family takaful sector with a 28% market share and secured the second position in general takaful with a 22.8% market share. Family contributions saw a 10% year-on-year increase, largely driven by credit-related products. General takaful gross contributions also gained momentum, increasing 8% year-on-year across fire, motor, and personal accident segments.

Challenges and Outlook

Despite the strong top-line performance, net profit was tempered by higher taxes from taxable wakalah fees and non-deductible bancatakaful fee amortization, which offset the gains from improved takaful service results and investment income. Experience variances also declined to RM40 million, an RM8 million year-on-year decrease. The issuance of a RM500 million Tier 2 Subordinated Sukuk in September 2025, at a profit rate of 3.83%, is expected to result in an increase in finance costs for the group.

Looking ahead, the company’s CSM rose 4% year-to-date, reaching RM1.43 billion, a strong indicator of solid future profitability. This increase was primarily fueled by higher new business CSM and a favorable RM44 million impact from changes in model estimates. AmInvestment Bank’s upward revision in FY25F-FY27F earnings estimates (by 1-3.4%) is primarily due to higher investment income estimates and a fine-tuning of takaful service results. The valuation remains compelling at FY26F P/BV of 1.1x, bolstered by robust family takaful growth and the substantial CSM, signaling sustained profitability.